How to start investing in real estate
Real estate investing is good way to accumulate wealth, whether it be flipping houses, renting out properties to tenants, and renting out commercial buildings for businesses, you can choose anyone of these options or all of them it’s your choice and is the blog we will discuss ins and outs of investing in real estate and help you better understand which option is best.
Why is investing in real estate a better option
While most people often invest in stock portfolios, some dividends, and even crypto. But real estate investing can be much more reliable asset.
- Rental Properties: When you invest a rental property you will receive passive income every month from your tenants.
- The value of properties: More often than not property values will be more inclined to go up than down while a stock or dividend value has the potential to got down.
- If you invest in real estate you can see some favorable tax credits in your future like property tax credit, mortgage payment credit, and if at some point home value depreciate you will get credit for that.
See if you have some good finances
Investing in real estate can be expensive, it is best to look into your current financial health
- Credit Score: A good credit score can ensure a good chance to obtain a mortgage loan.
- Savings: make sure you have enough savings, you will most likely have to use that on maintenance and other expenses on the home
Before purchasing a home it is best to have at least 20% of the property’s value saved up as a down payment.
To learn more about financial strategies in real estate investment head to Range.
Educate yourself
The first thing you might want to do is start investing right now, it would be a bad idea. Before even spending a red cent on investing it best you educate yourself on investing in real estate there are definitely some things you need to know.
- Know what the market is: The real estate market can change at any point from being a buyer’s or seller’s market
- Financing: know about financing options like mortgages, down payments, and terms of lending
- There are different property types like rental properties, commercial properties, and industrial properties.
- Know the legal obligations: With real estate there are some legal obligations you need to know like zoning regulations, tax obligations, and tenant laws.
To learn about the current housing market head to Redfin.
Set some goals
It’s best to have a clear plan or idea before we start doing any kind of investing, what exactly do you plan to accomplish by investing in real estate.
- Trying to get some tax advantages
- Some passive income
- Investing in properties that will appreciate
- All the above
Lastly what is your reason for investing, do you plan to reinvest you assets, want to retire at an early age, or another reason, asking these kinds of questions are important to investing.
Do some serious calculations
Before investing it is best to see how much the investment will cost you, think about the following things:
- Cash flow: how much money will you be making a each period minus any kind of expenses.
- Return on Investment: Here you will see what you will gain on profits
- Cap Rate: a Rate that is high has much higher chance of having a higher return
- Occupancy level: if the occupancy level is bad than that could be a bad sign
It’s always best to account for all expenses like taxes, maintenance, insurance, etc.
To learn more about other expenses in real estate head to Stessa.
Location is a big factor
If there is one thing that makes a house valuable it’s the location of the property. If the property is located in an undesired area can be problematic to ensure that the location is good make sure the following is met:
- Low crime rates
- Good school districts
- Population growth
- Strong job market
- Possible developments
- Low debris
If these criteria are met than you should have no problem selling a property to someone.
Put together a team
This might pain you to hear you can’t invest in real estate on your own, you will need to put together a team:
- Accountant: Someone who can go over the taxes
- A Real Estate Attorney: Someone to handle the legal obligations of leases and contracts
- Broker or Lender: For financing
- Real Estate Agent: A person to identify key properties for real estate investing
- Property Inspector: Evaluates the property for any problems
- Contractor: someone to handle any repairs on the home
- Property Manager: Someone to handle the property, this particular team member is optional
This team will ensure your investment in real estate will go smooth and easy
Choose your investment strategy
There are different ways to start investing in real estate, each one has its pros and cons, here are the following real estate investment options:
- Buy and Rent: Here you can purchase a home and rent it out to some tenants, which will generate some passive monthly income, you can benefit from: tax deductions, property value going up, and as stated earlier passive income.
- Home Flipping: This strategy involves buying a home that has seen better days then renovating it to make it more appealing so that it can sell. While this may seem to be a good idea this strategy requires a lot of time and money, as well some setbacks.
- limited time rental: If your home is in prime location for tourism and visiting putting up your home as an Airbnb isn’t a bad way to go, these kinds of properties will get more cash but in some areas there are some compliance orders and rules you will need to follow.
- Real Estate Investment Trusts: This strategy you don’t even have to buy a home or property you could just invest in real estate companies that, this is best for people who just starting out in the real estate business and not wanting to get their hands dirty.
Finance your investment
Unless your sitting a huge wad of cash, you will most likely require someone to finance your property like a lender or a bank.
- Mortgage loan: best for those who have a good credit score and good income
- FHA Loan: Has a lower down payment but it comes extra limitations
- Hard money lenders: This investment option is best for those who flip houses but the interest rates are much higher
- Home Equity Loan: If you have a property already, you can use any equity on the home to fund other investments
Get buying
Once you located a property that you meets your expectations it is time to make a purchase but first:
- Haggle of the price
- Inspect the home
- Finalize any loans that you might have acquired
- Sign any paperwork
Make sure you read every part of the paperwork there could be some loopholes or clauses that could favor certain parties.
To learn about any potential loopholes there might be in a lease agreement head to Wolf Nest.
Manage your Investment
So you acquired your property, now you need to manage it and make sure everything is good.
- Rental properties: Have tenants with good backgrounds and good credit, and make sure every applicant has a fair shot at the rental
- Flipping homes: Make renovations to the home and stay within the budget
- Passive investments: make sure money is invested where it needs to be and reallocated if needed.
Treat your real estate investment as a business.
Conclusion
When you start investing in real estate, you don’t need to spend a lot of money, all you need to do is invest in something you think is best for you and your goals, and make sure you manage the property and take care of anything that might will cause problems for the property and thus your financial goals.